Section 24: how the mortgage interest restriction works

Last reviewed: September 2026.

Section 24 of the Finance (No. 2) Act 2015 stopped landlords deducting mortgage interest and other finance costs from their rental income. Instead, those costs now attract a basic rate tax reduction of 20%, applied after the tax bill has been calculated. For basic rate taxpayers the effect is broadly neutral. For higher and additional rate taxpayers it is a substantial increase, because relief that was worth 40% or 45% is now worth 20%. The restriction applies to individuals, partnerships and trusts, and does not apply to companies.

What actually changed

Before April 2017, a landlord deducted mortgage interest as an expense, and paid tax on what was left. Section 24 removed that deduction and replaced it with a credit.

The change was phased over four years:

Since April 2020 no finance costs are deductible at all.

How the tax reduction is calculated

The reduction is 20% of the lowest of three figures, which is the part most summaries omit:

• Finance costs for the year, plus any brought forward from earlier years

• Property business profits for the year, after any brought-forward losses

• Adjusted total income, meaning income after losses and reliefs, excluding savings and dividend income, that exceeds your personal allowance

The reduction cannot create a refund. If it is calculated using profits or adjusted total income rather than finance costs, the unused difference carries forward to future years.

This matters for landlords running at or near break-even. Where profits are low, the reduction is capped by profits rather than by interest, so the relief actually received can be far less than 20% of the mortgage interest paid.

The real damage is to your tax band

The headline change is from 40% relief to 20%. The larger effect for many landlords is that gross rent, rather than rental profit, now flows into total income.

A landlord whose taxable income previously sat below a threshold can be pushed over it, and the consequences reach beyond the property business. HMRC's own guidance flags the High Income Child Benefit Charge as an example: a landlord with income over the threshold may now face a charge that the old calculation avoided. The same mechanism affects personal allowance tapering above £100,000.

A worked example

A higher rate taxpayer with £20,000 of rental income and £12,000 of mortgage interest.

Under the old rules: profit of £8,000, taxed at 40%, giving £3,200 of tax.

Under Section 24: the full £20,000 is taxable. Tax at 40% is £8,000, reduced by 20% of £12,000, which is £2,400. Tax due is £5,600.

The same property, the same cash position, and £2,400 more tax. Estimating your own position before the return is due is worth doing, because the figure is usually worse than landlords expect.

Former holiday lets are now caught

The furnished holiday lettings regime was abolished from 6 April 2025, with 1 April 2025 applying for Corporation Tax. Until then, FHLs sat entirely outside Section 24 and full mortgage interest relief was one of the regime's main advantages.

From 6 April 2025 former FHLs are treated as ordinary property income, and the finance cost restriction applies to them in full. For a higher rate landlord with £30,000 of annual interest on a holiday let, that is roughly £6,000 a year of additional tax: £12,000 of relief lost, replaced by a £6,000 credit.

This catches people who have not looked at their position since the announcement, and it is the change most commonly missed. Holiday let landlords who have always deducted interest in full should assume their 2025/26 return will look materially different.

What landlords do about it

There is no way to opt out, and the options each carry costs that need weighing against the saving.

Incorporation. Companies are outside Section 24, so a company holding property deducts interest in full. The obstacles are real: transferring property to a company is a disposal for capital gains tax, stamp duty is usually payable, and buy-to-let lending to companies has historically carried higher rates. It can make sense for larger portfolios and rarely does for one or two properties.

Reducing borrowing. Paying down debt reduces the restricted cost directly. Whether the capital is better deployed there than elsewhere is an investment question rather than a tax one.

Ownership between spouses. Where one partner is a basic rate taxpayer, shifting beneficial ownership can reduce the overall bill. This needs doing properly, with a declaration of trust and, where relevant, a Form 17.

All three have consequences beyond tax, and the right answer depends on figures no article can see. Our guide to choosing an accountant for a property portfolio covers what to look for in someone who can model it.

Getting the return right

Section 24 changed the arithmetic, not the record-keeping. Finance costs still need recording accurately, because the reduction depends on the interest figure, the profit figure and your wider income, and all three have to be right.

Rental income and allowable expenses are reported on the SA105 pages of your self-assessment return, with finance costs entered separately from other expenses rather than alongside them. Landlords who record interest as a general expense during the year usually have to unpick it in January.

For the broader picture of how rental income is taxed, including what else you can and cannot deduct, our full guide covers the position.

Frequently asked questions

Does Section 24 apply to limited companies? 

No. Companies deduct finance costs in full against rental profit. This is the main reason landlords consider incorporating, though the transfer costs often outweigh the saving on small portfolios.

Does Section 24 apply to holiday lets? 

Yes, from 6 April 2025. Furnished holiday lets were exempt until the regime was abolished, and former FHLs are now treated as ordinary residential property income.

Can I still claim anything for my mortgage? 

Yes, a 20% tax reduction on your finance costs, subject to the three-way lower-of test. You cannot deduct the interest from rental income before tax.

Does it apply to commercial property? 

No. The restriction applies to residential property only. Where a loan covers both, the interest must be apportioned.

Is Section 24 being repealed? 

There is no announced plan to repeal or amend it as at September 2026. It has been fully in force since April 2020, and recent changes have extended its reach rather than narrowed it.

This article is intended for general informational purposes only and does not constitute legal, financial or tax advice. Tax rules change and individual circumstances vary, and the information reflects the position at the time of writing. Always seek independent professional advice before acting in relation to your tax affairs.